The Core is Dead, Long Live the Core

Here is the paradox about credit union core systems: they are old, truly antique in computer terms, but they also seem to be immortal in most institutions.

“People have been talking about the death of the core since at least 1995,” said Scott Hodgins, a research director with Cornerstone Advisors in Scottsdale, Ariz.

That was the moment when the antiquity of systems running on dying computer languages – COBOL for instance, which dates back to the 1950s – came into clear focus, as Windows-based computers accelerated their march to nearly complete domination of the workplace.

But not in the back office of credit unions where even today, almost 20 years later, old cores – 20 to 40 years old, sometimes older still – continue to log transactions.

“The core is the essential organs of the credit union,” said David Gibbard, senior vice president at core company EPL in Birmingham, Ala.

And yet, admitted Gibbard, “Most cores are not doing what their credit unions want.”

What credit unions want, he elaborated, is a management information system – that is, computers that tell the institution all it needs to know about its members, its lines of business, its opportunities and more.

“That’s not what most cores are today,” said Gibbard, who said that the opportunity for core providers is to create systems “that let credit unions better understand and better serve their members.”

Other experts envision a revolutionary shift away from cores that record transactions to cores that track relationships, that is, “social cores” that let an institution see exactly where it slots in its community and in the lives of its members.

Quite probably something along that line will happen as institutions shift to an off-premise, so-called service bureau or hosted cores, very possibly one that serves multiple institutions simultaneously, suggested Gibbard.

A curious fact about cores is that most provide more power than their institutions need but they also, paradoxically, do much less than their institutions need, that is, they have severely constrained abilities and flexibility. Shifting to a hosted and shared environment just might solve both issues, at a more favorable price point for institutions.

But most credit unions still cling to their old cores and resist shifting to service bureaus, no matter how dazzling the possible computing benefits. Frankly, said Hodgins, his advice is to stick with an existing core – regardless of age – until it simply no longer provides what the credit union needs.

And that usually happens only when the institution wants to extend into a wholly new service (perhaps mobile banking) or offer a new line of business (business lending is a for instance of a product line that challenges many legacy cores, said Hodgins). Either way, until the core is broken, don’t throw it out, is the advice from Cornerstone.

Core vendors, incidentally, also have few reasons to kill off aged cores. “They are cash cows,” said Brad Smith, CEO of consulting firm Abound Resources in Austin, Texas. The vendors are not investing in upgrades, so the service fees that come in manly fall straight to the bottom line, said Smith.

That leaves neither side motivated to kill off an old core.

Also troubling is that one recent attempt to build a core from the ground up, Fiserv’s Acumen, has seemed to stumble to a premature death, with Fiserv opting to buy the aging Open Solutions Inc. DNA core and use it – with some upgrades borrowed from Acumen – as its new flagship core.

A reason for the lagging core development: shifts off legacy cores are very few in number. There’s a handful every year, no more, and that sluggish market has not fueled substantial investment in developing new core architecture.

There also, increasingly, are clever strategies for prolonging core life, mainly by moving functionality off the legacy core and into newer computers that work side by side with the core.

Mary Nugent, a vice president at systems modernization firm Micro Focus, said that the first thing her company does when it is brought in to tweak a sagging core is hunt for processes to shift off the core.

“That is low-hanging fruit with little impacts on [members],” said Nugent – and of course the prime worry with any core update or conversion is that members will be inconvenienced (or worse) and they will flee the institution.

Selective off-loading of functions that do not need to be on the core is a generally safe strategy, said Nugent.

Hodgins said similar: “Credit unions are adding to their cores’ lives by moving functions off them.” Cornerstone’s number crunching makes that shift vivid. Some years ago, core systems ate up half of a typical credit union’s IT budget, said Hodgins, and now that number is nearer to 20%.

That is a fact about credit union computing today. The core has ceased to be the system, it now shares the stage with multiple systems that may be every bit as important to the life of the institution, said Hodgins.

“The core matters less today, so long as it provides minimum functionality, it is doing its job,” said Hodgins.

Robert McGarvey is a longtime technology reporter and writer for Credit Union Times and many other national publications.